Question
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,700,000. Patterson will provide the following pattern of cash inflows and
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,700,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carry-forward.
| Years | |||
| 15 | 615 | 1620 | |
| Cash inflow (aftertax) | $510,000 | $670,000 | $870,000 |
| Synergistic benefits (aftertax) | $ 47,000 | $ 67,000 | $ 77,000 |
The cost of capital for the acquiring firm is 12 percent.
a. Calculate the net present value. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)
b. Should the merger be undertaken?
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Auditing Fundamentals In A South African Context
Authors: Gerrit Penning, Rika Butler, Pieter Von Wielligh, Frans Prinsloo
2nd Edition
0190749040, 978-0190749040
